Closing Recap

Wednesday, October 16, 2024

It was a quiet day on Wall Street as another slow, methodical market rally took place, with major averages ending near the highs. Not a ton of macro news, but enough individual stories to move several stock sectors, as markets partially recovered following yesterday’s pullback from record highs in the S&P 500 and Dow Jones Industrials. With today’s mini bounce, the S&P has yet to post a back-to-back daily decline since 9/3-9/6 calendar period, as investors continue to bid up stocks into the final quarter of the year. Among the best sector movers included: 1) Dow Transports rose to best levels since July 2023 after UAL and JBHT advanced sharply following earnings results (ahead of CSX tonight); 2) nuclear energy companies (TLN, VST, D, NNE, SMR, OKLO) as well as uranium names (UEC, UUUU, CCJ) surged after AMZN was the latest tech company to sign agreements on developing nuclear power technology called small modular reactors (SMR); 3) banks, especially regional banks (KRE) advanced as earnings continue to impress (UBS, FHN, MS today) with Financials (XLF) hitting all-time highs; 4) crypto stocks (COIN, MSTR, CLSK, MARA) advanced as Bitcoin prices jumped. NYSE market breadth strong again with nine of the eleven S&P sectors finishing positive, led by Utilities, Financials, Industrials, and Materials. Bitcoin hit its best levels since July as risk assets bid higher; oil down slightly; gold ends not far off its all-time highs. Smallcaps were the biggest winners today at the Russell 2000 rises over 1.6% and approaches the 2,300 level (which is the 52-week high on 7/31).

September and October are historically the toughest months of the year for the stock market, but that has not been the case in 2024, and CNBC noted another possible “tailwind” for U.S. markets heading into Q4. CNBC noted there was record buyback in Q2 as $988B in corporate buybacks so far YTD, up 23% y/y. CNBC noted in Q2 AAPL had $28B in buybacks, GOOGL $16B, META $10B, NVDA $9B, and WFC $6B. CNBC also notes 21.1% of buybacks occur in November and December (CNBC cites Goldman data). CNBC also notes there is a 1% tax on net buybacks which was implemented in 2023 (which reduces SPX reported earnings by 0.5%) – notes Q2 earnings were up 13% (instead of 13.5% w/o tax). News about to get busy, especially in earnings as per Goldman Sachs data, we got 12% of the S&P reporting earnings this week…but the upcoming week of October 25th is the busiest week of earnings season with 37% reporting. The week of Nov 1st has about 24% of SPX reporting, 8% on week of Nov 8th, 2% the week of Nov 15th, and 9% week of Nov 22 (1% and 2% the next two weeks after).

• U.S. MBA mortgage applications plunged -17.0% in the week ending October 11, after falling -5.1% and -1.3% respectively in the two weeks prior. Purchases declined -7.2%, after inching down -0.1% in the week ending October 4. Refinancing plunged -26.3%, the third weekly drop, as the 30-year rate jumped to 6.52% from 6.36%.
• UK CPI decelerated much faster than expected to 1.7% YoY in September from 2.2% YoY in August. The services CPI markedly surprised on the downside easing to 4.9% YoY from 5.6% YoY boosting the odds of quicker rate cuts by the BoE. The weaker inflation reading pushed the British Pound to a monthly low below the 1.304 threshold.

• U.S. WTI crude oil futures slipped -$0.19 or 0.27% to settle at $70.39 per barrel while Brent crude dipped -$0.03 to settle at $74.22 per barrel.
• Bitcoin prices extend their recent rally, moving to the best levels since July back above $68,000. The rally sparked gains in other cryptocurrencies and related equities such as Coinbase and Marathon Digital. Bitcoin is up more than 9% over the last week and ether is up about 7%.
• The U.S. dollar index (DXY) also continued strength, rising above 103.50 to best level since early August, with big moves against the euro (holding below 1.09) and the Japanese yen (above 149). Overnight got a boost vs the British Pound after UK inflation data showed a big decline, prompting bets of aggressive cuts by the Bank of England.

• In Retail: Luxury retail names looked to bounce (RL, TPR) after sinking the day prior when LVMH delivered a disappointing sales performance despite expectations that had lowered ahead of the report given concerns of a sequentially weakening Chinese consumer
• In Restaurants: YUM was downgraded to Hold from Buy at TD Cowen saying the stock’s risk/reward is balanced as there is risk development will miss consensus in 2024 and 2025, while the removal of Taco Bell breakfast at up to two-thirds of U.S. locations presents a 1%-2% comp headwind that risks a negative sales revision. Goldman Sachs said sees CMG’s re-launch of the smoked brisket LTO and the investments in larger/consistent portion sizes as key drivers of the shift in data and perception, with the results offering support for its thesis. Goldman Sachs also highlights SG, the top performing stock in the group over the past month
• In Tobacco: Goldman Sachs said they remain cautious on the US tobacco/nicotine industry near-term given ongoing pressures on the tobacco consumer which continues to drive downtrading to cheaper alternatives. However, the firm sees a positive risk-reward for MO ahead of Q3 on stable market share and on! benefiting from promotional activity.
• In Beverages: Goldman Sachs said Q3 retailer survey shows moderating beverage trends in C-stores; but STZ, TAP, & MNST the bright spots. Beverage sales in the convenience store channel have moderated as expected in 3Q, leading to lower expectations for 2024 growth, but retailers expect faster beverage growth next year. Favor: STZ, TAP and MNST.

• In Casino/Gaming preview (CZR, PENN, BYD, CHDN), Bank America said heading into Q3 earnings, they are largely in-line with the Street in Macau and expect upbeat tones from operators. In Las Vegas, think Q3 could also be softer than expected, and the firm is -2% below Street. For regionals, they are broadly in-line with the Street and think areas of increased competition are areas of softness

• In Nuclear/Power stocks: shares of SMR, CCJ, OKLO, NNE, VST, UEC, D all showing strength early after AMZN signs agreements for innovative nuclear energy projects to address growing energy demands. Amazon said it signed 3 new agreements to support development of nuclear energy projects—including enabling construction of several new SMRs. The news shows the continued need by big tech to find more power sources to fund AI. Recall in mid-September, MSFT and CEG entered a deal to restart Pennsylvania’s Three Mile Island to help power the tech giant’s growing artificial intelligence ambitions. Over the summer, The WSJ reported that Amazon Web Services was nearing a deal for electricity supplied directly from a nuclear plant on the East Coast with CEG, the largest owner of U.S. nuclear-power plants. Now, Amazon is partnering with Dominion Energy Virginia to explore ways to advance SMR development and financing, while also mitigating potential cost and development risks for customers and capital providers.

• MS reported Q3 revs $15.38B vs. est. $14.41B; Q3 provision for credit losses $79M vs. est. $58M; Q3 total client assets surpassed $7.5 trln across wealth and investment management; Q3 net interest income $2.20B vs. est. $1.87B;

• In Insurance (ALL, HRTG, UVE, EG): Catastrophe modeler Verisk said it expects insured losses from Hurricane Milton will be between $30B and $50B from damages caused mostly by wind. Verisk’s Extreme Event Solutions group said the range includes privately insured losses to onshore property due to wind, storm surge, and precipitation-induced flood.
• In Consumer Finance: SYF shares advanced on earnings results as Q3 profit was boosted by higher interest and fees on its loans boosted income; provision for credit losses increased to $1.6B from $1.49B in the year-earlier quarter.
• In REITs: SVC shares tumbled after slashing its dividend by 95% to 4c from 80c and made plans to sell over a hundred of its focused-service hotels as it looks to reduce debt and improve its liquidity. Service Properties also plans to sell 114 of its 187 focused service hotels managed by Sonesta International Hotels next year. PLD raised its 2024 adj FFO to range of $5.49-$5.53 from the prior $5.46-$5.54 per share range after Q3 results topped consensus.

• ALNY submits regulatory application to the EMA for Vutrisiran for the treatment of ATTR Amyloidosis with Cardiomyopathy.
• CRBP announces enrollment completion of dose escalation stage of phase 1 clinical trial of its next generation nectin-4 targeting ADC (crb-701).
• NVAX said the FDA has placed a clinical hold on Novavax’s IND for its COVID-19-influenza combination and standalone influenza vaccine candidates; FDA notified Co that FDA placed clinical hold on ind application for COVID-19-influenza combination & standalone influenza vaccine candidates.
• NVCR shares jumped after saying the FDA approved Optune Lua to treat metastatic non-small cell lung cancer in adults who have progressed on or after a platinum-based regimen.
• UHS was upgraded to Buy from Hold at TD Cowen and raised PT to $283 saying the company’s EBITDA consensus estimates over the next 3-12 months may move 15%-20% higher, and potentially higher long-term.
• URGN shares rose after late yesterday said the FDA approved its new drug application for UGN-102, an investigational drug to treat certain types of bladder cancer
• WVE shares surged following positive early-stage trial data from its genetic disorder therapy WVE-006 which is administered as an under-the-skin injection to patients with alpha-1 antitrypsin deficiency, a genetic disorder than can cause liver disease.
• Shares of Life Science/Tool stocks (A, DHR, WAT, TMO, MTD) declined after smaller Swiss based Tecan cut its outlook for the year, citing ongoing weakness in China; cut 2024 adj EBITDA margin to 16-18% vs 18-20% previously and said seesFy24 sales declining 12-14% vs previously expected of a flat to mid-single digit percentage fall.

• In Truckers: JBHT Q3 EPS of $1.49 was down 9% y/y but beat Street estimate of $1.39 led by above-target Intermodal Load growth as shippers pulled-forward volumes in anticipation of an East Coast Port strike. ODFL maintains top-ranked national carrier status for the 15th consecutive year at Barclays while XPO remains #4 (moving up in overall table) and SAIA gives up two places.
• In Tankers: The Baltic Dry Index extended its fall to the lowest in more than two months as rates for all vessel segments declined. The overall index fell 90 points to 1,676 points, lowest since Aug. 13 as the Capesize index fell 221 points to 2,552 points (2 month low), the Panamax index dropped 55 points to 1,309 points and among smaller vessels, the Supramax index shed 3 points to 1,257.
• In Airlines: UAL posted better than expected Q3 results despite numerous headwinds as EPS came in at $3.33, well ahead of consensus of $3.07 despite the Crowdstrike "hit" which resulted in ~2,600 cancellations at mainline and regional partners over a 5-day period; said Q4 demand likely negatively impacted by US election, like DAL commentary
• In Industrials: EMR was downgraded from Overweight to Equal Weight at Stephens and cut their tgt to $120 from $135 at Stephens noting since last quarter, Emerson has closed the divestitures of the Copeland equity interest and note receivable, which combined represent $2.9B in after-tax cash proceeds – Stephens sees a potential transaction as dilutive to adjusted. CARR was downgraded at Stephens noting since the 2020 spin off, shares have increased >500% (vs. >150% for the S&P) and YTD have rallied >40% (vs. >20% for the S&P).
• In Power and E&C space: B Riley raised price tgts for PWR to $343 from $303, DY to $234 from $208 and MTZ to $151 from $134 ahead of earnings. For DY, Riley said given that the telecom network is the last to be repaired post-hurricane damage, DY could witness a modest negative impact during its FQ3 (October), offset by a tailwind in FQ4 (January); for MTZ, given the timing of the two major hurricanes, sees insignificant impact to Q3, yet anticipate a moderate positive impact to earnings in Q424; for PWR, believes the co has significantly participated in recent and ongoing hurricane restoration efforts. This should be noticeable in PWR’s Q4 results (guidance).

• In Metals: Boliden (BDNNY) was downgraded to Underweight from overweight in European metals at Barclays saying they prefer GLNCY, NGLOY noting miners could have a decent Q4 with seasonality tailwinds, near-term support for base metals from potential China stimulus and global rate cuts (the latter also benefiting gold). RIO said it shipped weaker-than-expected 84.5 mln tonnes of ore from its Western Australia operations during Q3, of which 19% accounted to lower-grade; said mining costs there are likely to be in the upper half of an annual forecast.
• In Lithium sector: LAC shares jumped after saying entered into a new investment agreement with GM to establish a joint venture for the purpose of funding, developing, constructing and operating Thacker Pass in Humboldt County, Nevada. The transaction will deliver $625 million of cash and letters of credit from GM. PLL was downgraded to Underperform from Neutral with a $7.80 price target at Macquarie.

• In Software: SVCO falls after cuts FY24 revenue view to $60M-$63M from $63M-$66M (est. $64.54M) and lowered its FY24 gross bookings view to $64M-$67M from $67M-$71M saying they “saw a decline in orders from Asia during Q3 primarily driven by economic challenges and the ongoing strain in U.S.-China trade relations”.
• According to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker, global smartphone shipments increased 4.0% year over year to 316.1M units in the third quarter of 2024 (Q324). This Marks the fifth consecutive quarter of shipment growth with a strong start into the second half of this year despite macroeconomic concerns. "While the growth of the Chinese players in emerging markets has been an ongoing theme this year, $AAPL also enjoyed a 3.5% YoY growth in shipments this quarter fueled by strong demand from the previous models and the launch of the new iPhone 16 lineup.”

• AMAT, LRCX, KLAC continue underperformance a second day after ASML weaker guide in semi equipment space sunk stocks Monday, while chip names rebounded early ARM, MU, STM, etc.
• A report in The Information indicated the recent production hiccup with NVDA’s latest AI chip shows the growing pressures in its relationship with its main chipmaking partner, TSM.
• Bloomberg reported this afternoon that key US lawmakers are pressing the Biden administration to block Huawei Technologies Co. suppliers from buying American chipmaking gear, escalating efforts to prevent the sanctioned Chinese telecom giant from making progress on semiconductor manufacturing.